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The pressure to go into special session or take immediate action this year in response
to federal tax reform no longer exists for state lawmakers and governors

State officials, keeping tabs on what’s happening in Washington, aren’t scrambling
to plan responses before the next tax year to potentially sweeping changes to federal
tax law.

Many of them just don’t believe the Republican-controlled Congress and President Donald
Trump will get anything done on that front before the end of the year.

Colorado House Speaker Crisanta Duran (D) told Bloomberg BNA it doesn’t seem likely
Republicans will be able to stick to their previous timetable, given the “scandals
and dysfunction” they’re facing.

Even House Speaker Paul Ryan (R-Wis.) told reporters May 24 that discussions of border
adjustments and other facets of federal tax policy would continue through the summer
and that tax legislation was probable by the end of December.

Congress will first work on a bill to repeal and replace the Affordable Care Act and
then the federal budget, both of which also greatly impact state budgets.

“Tax reform is not going to happen, that’s what I think,” Max Behlke, director of
budget and tax policy for the National Conference of State Legislatures, told Bloomberg
BNA. Behlke doesn’t believe the Senate will have a health care bill to repeal and
replace the Affordable Care Act by August, after which Congress will address the debt
ceiling and reauthorization bills.

“That’s a lot of work,” he said. “And then Ryan has a different plan on taxes than
the White House’s messaging.”

‘Growing Disbelief’

At the beginning of the year, Behlke was receiving calls from state lawmakers asking
about the timing of tax reform. He no longer receives those calls—possibly because
states have been preoccupied with their legislative sessions or they just don’t think
tax reform will happen this year, he said.

“There is growing disbelief that tax reform will take place,” he said.

In late April, Colorado Gov. John Hickenlooper
(D) voiced concern to CNBC about the impact the Trump tax plan would have on states.
Now, Hickenlooper said “tax reform doesn’t appear to be one of the highest priorities
of this administration.”

Lack of Bipartisanship

Montana state Rep. Zach Brown (D) told Bloomberg BNA he remembers when Sen. Max Baucus
(D-Mont.) spent the final years of a 36-year career in the U.S. Senate trying to build
support for bipartisan tax reform.

“If it was too big a lift then by a seasoned coalition of statesmen, it is almost
certainly out of reach to this hyper-partisan Congress and the dysfunctional Trump
administration,”
Brown said, adding that the state isn’t likely to need a special session to respond
to Washington. Montana is one of several states on a biennial legislative cycle that
could be most impacted by sweeping tax reform this year.

Karl Frieden, vice president and general counsel of the Council On State Taxation
(COST), said “a natural lag time” between when a federal tax law is enacted and states
react always exists, which means states probably wouldn’t be taking action this year
even if federal tax reform passes.

Still, states aren’t just sitting by—they are pressing members of Congress on proposals
being discussed, such as full and immediate expensing of capital investments and the
potential elimination of the state and local deduction, Frieden said.

While the GOP wanted to get tax reform done this year, the real deadline is probably
the 2018 elections, he said.

In 1986, tax reform lowered rates and broadened the base, he said. “You have that
this time around plus many other items that weren’t around then,” such as moving to
a territorial tax system, border adjustments and 100 percent expensing, Frieden said.

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